Valeo minority investor warns of Visteon risk

DavidPearson

(This story was originally published Tuesday)

PARIS (MarketWatch) -- French car parts company Valeo SA (13033.FR) would be playing with fire if it tried to take over U.S. automotive supplier Visteon Corp.
VC, -0.37%
one of Valeo's minority shareholders said Tuesday.

Guy Wyser-Pratte told Dow Jones Newswires in an interview that Valeo could face a lethal situation if it took over Visteon, only for Ford Motor Co.'s
F, +1.07%
financial difficulties to worsen to the point where it filed for bankruptcy.

"I'm not excited about the idea of Valeo buying something that would force it to take the whole impact of a Ford bankruptcy (on Visteon) onto its balance sheet."

Financially troubled Visteon was part of Ford until it was spun off in 2005, but it continues to rely on its former parent for 45% of its sales.

"Even a small risk isn't worth it if it potentially can destroy your company," Wyser-Pratte said.

His investment fund, Wyser-Pratte Management Co. Inc., owns just under 3% of Valeo in association with two other investment funds: London-based Cycladic Capital and DGB Investments, a California firm.

At the same time, U.S. investment fund Pardus European Special Opportunities Master Fund LP has built up a stake of nearly 11% in Valeo in recent months. Pardus owns more than 17% of Visteon, and financial analysts suspect that the fund owned by Karim Samii would push Valeo into an alliance with Visteon if it can get control of Valeo's board.

Eric Sharper, automotive analyst at Dresdner Kleinwort, agreed that a move by Valeo on Visteon would be risky, noting that if Pardus gained control of Valeo's board and engineered a takeover of Visteon by the French company, "it would most likely push Valeo's credit rating into high-yield territory."

Such a takeover "would have the upside of giving the French company access to assets that it probably wants anyway, notably in climate-control technology, albeit by taking on considerable Ford risk," Sharper said.

Visteon's enterprise market value is currently estimated at around $2.5 billion, and Wyser-Pratte commented that Visteon "isn't worth anything like the $3 billion to $4 billion that Pardus thinks it's worth. On that score, Valeo's management agrees with me." Pardus reckons that a merger between Visteon and Valeo could generate synergies of between $300 and $500 million.

Valeo Chief Executive Thierry Morin is on the record as saying that the company could think about acquisitions costing up to EUR2 billion, which would put Visteon just within reach, but has also stated that's he's not looking to spend all that amount on just one company. That could change, however, if Pardus wins control of Valeo's board.

Valeo's share price has climbed by more than 12% since March 14, suggesting that one or other - or possibly both - of the minority shareholders has been adding to their portfolios in recent days. Pardus will have to make a threshold declaration if it lifts its stake above 15%.

Dresdner's Sharper, who has an underweight rating on Valeo's debt, said that if it's confirmed that Pardus has indeed been buying the stock, he would tell clients to reinstate short positions.

"We haven't been buying Valeo stock recently, and yet the share price has been going up," Wyser-Pratte said. He added, however, that "we might well increase our shareholding" at some point in the future.

Valeo's annual general meeting on May 21 is shaping up to be a battle between the minority shareholders for control of the company. The terms of nine of Valeo's 11 board members - including Chief Executive Morin - come up for renewal at the AGM, and Wyser-Pratte and Pardus both intend to propose resolutions that will give them a majority of the seats on Valeo's board.

Wyser-Pratte feels Valeo needs to be run more dynamically and must be more forceful in its restructuring at a time when automotive suppliers are feeling the pinch of high raw material prices and of downward price pressure from automobile manufacturers.

"Some of Valeo's businesses are marginal" and should be spun off, Wyser-Pratte said, though he declined to say which ones. Furthermore, he noted, Valeo is spending twice as much as its competitors on research and development on new products.

Wyser-Pratte said he isn't hostile to the idea of Valeo making more acquisitions on a piece-by-piece basis to bolster its product portfolio and gain access to technology in fast-growing areas, but "this should only happen once the company is restructured."

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